PIPS/PIRMS November 12, 2009 P erformance erformance B ased ased S tudies tudies R R esearch esearch G roup roup www.pbsrg.com PBSRG GLOBAL Dean T. Kashiwagi, Dean T. Kashiwagi, Director, PhD, Director, PhD, Professor, Fulbright Scholar Professor, Fulbright Scholar Jacob Kashiwagi Jacob Kashiwagi PhD Student PhD Student Delft University Delft University
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PIPS/PIRMS November 12, 2009 P erformance B ased S tudies R esearch G roup PBSRG GLOBAL Dean T. Kashiwagi, Director, PhD, Professor, Fulbright.
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Dean T. Kashiwagi, Dean T. Kashiwagi, Director, PhD, Director, PhD, Professor, Fulbright ScholarProfessor, Fulbright Scholar
Jacob KashiwagiJacob KashiwagiPhD StudentPhD Student
Delft UniversityDelft University
• Conducting research since 1994 • 175 Publications• 483 Presentations, 8,600 Attendees• 683 Procurements• $808 Million Construction services• $1.7 Billion Non-construction services• $1.3B Euro ($2B) construction test ongoing in
the Netherlands• Africa/Southeast Asia/Australia (7 universities)• ASU procurement - $100M over ten years• GSA implementation in 2009• 50 Different clients (public & private)• 98% Customer satisfaction, 90% of PM/RM
transactions minimized
PBSRG(Performance Based Studies Research Group)
“Best Value” Processes and StructuresPerformance Information Procurement System (PIPS)
• Win: Minimize up to 90% of project management/administration/busy work and minimize transaction costs by 20%.
• Win: Increase vendor profit up to 100%
• Win: Minimize risk to 2% of projects not on time, not on cost, and client not satisfied
• Win: Cost does not increase with higher value
Industry Structure
High
I. Price Based
II. Value Based
IV. Unstable Market
III. Negotiated-Bid
Specifications, standards and qualification based
Management & Inspection
Best Value (Performance and price measurements)
Quality control
Competition
Pe
rfo
rman
ce
Low
High
Owner selects vendor
Negotiates with vendor
Vendor performs
Contractor minimizes risk
Client minimizes risk
Buyer Assumptions:A1 – Perfect identification of requirementA2 – Perfectly communication to suppliersA3 – Suppliers perfectly understandA4 – Buyer can manage, direct, and control (M,D,C)
Buyer
Low $$$$
Suppliers
M,D,C
Low Bid Assumptions
High
Low
Perf
orm
an
ce
Owners
“The lowest possible quality
that I want”
Contractors
“The highest possible value that you will get”
Minimum
Problem with Priced Based Systems
High
Low
Perf
orm
an
ce
Maximum
Inexperienced vs Experienced
Us
RiskRiskss
RiskRiskss
Control Don’t Control
Control Don’t Control
Me & Them
Perf
orm
an
ce
High
Low
Ris
k
High
Low
Impact of Minimum Standards
Contractor 1Contractor 2Contractor 3Contractor 4
Contractor 1
Contractor 2
Contractor 3
Contractor 4
Perf
orm
an
ce
High
Low
Ris
k
High
Low
Decision making: what is the minimum standard, and do all contractors meet the minimum standards
Industry performance and capability
Highly Trained
MediumTrained
Vendor XCustomers
OutsourcingOwner
PartneringOwner
PriceBased
MinimalExperience
Initial conditions
Final conditions
Event
Time
Laws Laws
• Believes in chance• Being controlled by others• Will try to control others• Does not adequately pre-plan due to
perception of too many variables• Blames others if something goes
wrong
Influence Vs. No Influence
Influence Vs. No Influence
• Chance• Controlled• Controls others• Does not adequately preplan• Blames others
• Does not believe in chance• They dictate their own future• Cannot control others• Preplans• Identifies what they may have
done wrong
Change to Optimize
• Chance• Controlled• Controls others• Does not adequately
preplan• Blames others
• Does not believe in chance• They dictate their own
future• Cannot control others• Preplans• Identifies what they may
have done wrong
V BC
Buyer Controls Vendor Through Contract
Risk Model
V BC
Vendor Manages/Minimizes Risk With Contract
Risk Model
Best Value SystemPerformance Information Procurement System (PIPS)PM model, Risk Management model
PHASE 3:
MANAGEMENT BY RISK
MINIMIZATION
PHASE 1:
SELECTION
PHASE 2:
PRE-PLANNINGQUALITY CONTROL
Best Value also known as “sealed competitive bid” in State of Texas
Identification of Responsibility of Vendors
• Past performance information on the critical elements
• Scope( as understood by the vendor from RFP)
• Schedule with major milestones
• Risk assessment value added (RAVA) plan
• Interview of key personnel
Making it DominantP
lan
nin
g /
Pro
gra
mm
ing
Desig
ner
Con
tracti
ng
Ven
dors
/
Man
ufa
ctu
rers
Users
Insp
ecto
rs
Sim
plicit
y/D
om
inan
tIn
form
ati
on
Technical Details
30K Foot Level
What is Dominant Information
• It is simple
• It is accurate
• There is minimized information
• It stands out
• It minimizes everyone’s decision making
• It is easy to get, print out, someone has it very handy
• It predicts the future outcome
• It makes it clear among many parties
Not Dominant
Dominant
Not Dominant
Self Regulating Loop(Six Sigma DMAIC Generated)
Actions• Minimize data
flow• Minimize analysis• Minimize control
Scope, Risk Assessment, Value Added and Price
Preplanning, Quality Control Plan
Measure again
50%
Identify value (PPI, scope, RA, Interview, $$$$$)
V
50%
Interview Key PersonnelPast Performance
InformationM
Requirements(DBB, DB, CMAR, DBO)
Efficient Construction
M R
MM
R
R
R
= Minimize Risk
= Self Measurement
= Identify Value
M
R
V
University of Minnesota Results
• Number of procurements: 111• Budget amount: $31.4M• Amount awarded: $29.5M• Number of years: 4• Award below average bid price: 6%• Award below budget: 7%• Award to the lowest price: 60%• Cost increase due to client: 6% (trying to spend
budget)• Cost increase due to contractors: 0%• Time deviations: 0% due to contractors
Best Value SystemPerformance Information Procurement System (PIPS)PM model, Risk Management model
PHASE 3:
MANAGEMENT BY RISK
MINIMIZATION
PHASE 1:
SELECTION
Lowest, responsible,
bidder
PHASE 2:
Clarification of Bid
Risk Management Plan
Award of Contract
Construction Contract Award
Identification of Potential Best-Value
Lowest Price is
responsible bidder
Proceed to Pre Award /
Award
Dominant Information to justify
not awarding to lowest
bidder
YesYes
YesYes
YesNo
YesNoPrioritization
Proceed withAlternative Bidder
or Re-Run
Important Aspects of PIPS
• Vision beginning to end
• No technical risk
• 30K foot elevation analysis
• Preplan• Schedule is risk focused
• Quality Control/Risk Management (minimize risk they don’t control)
• Supply chain thinking• Win-win
PM 2 PM 3 PM 4
Procurement Officer 1 Procurement Officer 2
Director
Contractor 5
Contractor 6
Contractor 7
Contractor 8
Contractor 9
Contractor 10
Contractor 11
Contractor 12
Contractor 13
Contractor 14
Contractor 15
Contractor 16
Facility Director
FM2 FM3 FM4
MEDCOM CommanderCOE Procureemnt Office1
COE Procureemnt Office1
COE Procurement Office1
QAQA
QAQA
PM 1
Contractor 1
Contractor 2
Contractor 3
Contractor 4
FM1
Project IntegratorProject Integrator
Project Integrators
Hospital Users
Facility Director
MEDCOM Structure
PM 1 PM 2 PM 3 PM 4
Procurement Officer 1 Procurement Officer 2
Director
Contractor 1
Contractor 2
Contractor 3
Contractor 4
Contractor 5
Contractor 6
Contractor 7
Contractor 8
Contractor 9
Contractor 10
Contractor 11
Contractor 12
Contractor 13
Contractor 14
Contractor 15
Contractor 16
Case Study: US Army Medical Command26 major hospitals, 200 projects, $250M
Regional Director Regional Director
Hospital 1 Hospital 2 Hospital 3 Hospital 4
Director
On Going Projects: Division Overview
Top 10 Risk Projects
TOP 10 RISK RANKING PROJECTS (WRMC)
No. Project Location Risk # Contractor# Weeks
on Top 10NTP of Project
Risk Type
1Addition to Third Floor Women’s
Health Care SuiteFt. Lewis, WA (MAMC) 42.63 J & J Maintenance 31
10/18/2007
approval
2 Renew Health Clinic, Building 990 Yuma Proving Grounds, AZ 11.01 J & J Maintenance 21 9/11/2007 NTP
3 Renew Smith Dental Clinic Ft. Carson, CO 8.04 John J. Kirlin 2 9/25/2008 Review
4 Repair HVAC Building 9782 Ft. Lewis, WA (MAMC) 8.00 J & J Maintenance 110/16/200
8approval
5 Repair Bldg 9921 A & B Ft. Lewis, WA (MAMC) 7.95 J & J Maintenance 110/16/200
9approval
6 Repair Bldg 9912B Ft. Lewis, WA (MAMC) 7.86 J & J Maintenance 110/16/200
6Scope
7 Condenser cooling water Sys. Ft. Lewis, WA (MAMC) 7.77 J & J Maintenance 110/15/200
8Scope
8 Sea Level Aquifer P/T System Ft. Lewis, WA (MAMC) 7.69 J & J Maintenance 1 9/16/2008 approval